MBS RECAP: Odds Drastically Increase That "It's Not About The Fed"

By: Matthew Graham •

In this morning's commentary, I said that anxiety over today's FOMC Minutes was misplaced when it comes to defining moments in a potential long-term shift toward higher rates.   The bigger issue has been and will continue to be Europe.  But even then, it was still fair to wonder how big a role today's FOMC Minutes might play in the bigger picture, for obvious reasons.

In case it's not altogether obvious, the reason is that today's Minutes may have offered clues as to rate hike timing.  It turns out they did!  And it was just about as decisive and unanimous a statement as we see in Fed Minutes releases:

"Many participants, however, thought it unlikely that the data available in June would provide sufficient confirmation that the conditions for raising the target range for the federal funds rate had been satisfied, al-though(sic)* they generally did not rule out this possibility."

So the Fed is basically saying that June is off the table.  Great news, right?!

Unfortunately, markets didn't really care, and it wasn't an issue of there being equally strong statements to counterbalance the apparent boon to rates.  Markets simply didn't care much at all.  There wasn't much volume (relative to the typical Minutes release) and there wasn't much volatility.  Fannie 3.5 MBS didn't even make a new high or low compared to yesterday.  In fact, they didn't even break the high or low set earlier today!  Think about that... Better yet, Look at it!  (White dotted lines show today's pre-FOMC trading range and teal lines show yesterday's highs and lows)

The conclusion now is the same as my assertion this morning.  It's still all about Europe.  But even then, I'm surprised at just how little these Minutes mattered.  The other option is that we're on some sort of cruise control until after the 3.5-day weekend.  Either way, while today was green, it didn't provide any sense of relief.  The only remaining wild card that could still make it "all about the Fed" would be Yellen's speech on Friday, an hour before the 3.5-day weekend.  Talk about longshots...

*What's up with this out-of-place hyphen in the word "although?"  That's how it appears in the official version on the Fed's site.  We already know they revisit the meeting minutes and can make edits before the release, so conspiracy theorists might suggest that sentence had been one of the edited ones.

 

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
MBS
FNMA 3.0
100-22 : +0-08
FNMA 3.5
104-00 : +0-08
FNMA 4.0
106-17 : +0-06
Treasuries
2 YR
0.5930 : -0.0240
10 YR
2.2570 : -0.0330
30 YR
3.0580 : -0.0157
Pricing as of 5/20/15 5:16PMEST
Today's Reprice Alerts and Updates
A recap of Alerts and Updates provided to MBS Live subscribers.
2:11PM  :  Bonds Not Thrilled With FOMC
9:57AM  :  ALERT ISSUED: Addendum to Previous Update: Negative Reprice Risk
9:48AM  :  Fighting Off Early Negative Reprice Risk For Now
MBS Live Chat Highlights
A recap of featured comments from the Live Discussion on the MBS Live Dashboard.
Matthew Graham  :  "Granted, firmer commitments may indeed be on hold until after the holiday weekend. "
Matthew Graham  :  "having hit 2.285 overnight, and remaining much closer to 2.29 after FOMC, I'm not thrilled about how we're trading with respect to that range"
Matthew Graham  :  "I can agree with that outlook on the range."
Matthew Durso  :  "kind of ominous, but I still feel like we are range-bound until we break 2.29 on the high or 2.14 on the low...no?? I'm in the not about the Fed camp...until it is, of course."
Matthew Graham  :  "Fed says no June Hike and we get halfway back to yesterday's opening levels? I hope no one is inferring anything confidence-inspiring from today. We were on the ropes big-time yesterday, and this is only marginally better than that. Best case scenario, "it's not about the Fed," and one can still hope that whatever it IS about (probably Europe) will be helpful, soon. Worst case, this is another brick in the wall--a wall made of pain and sharp, poisonous things. "
Raul Lopez  :  "Not very good Sung :)"
Sung Kim  :  "How has your gut been working this year Raul?"
Raul Lopez  :  "I agree with Oliver, but at the same time, my gut tells me a rally back to the green is due."
Bill Hills  :  "I would lock at any time the prevailing rate provides a solution for my client ... regardless of market conditions."
Oliver Orlicki  :  "Crazy to float in this market"
Daniel Munoz  :  "float em if you got em"
Raul Lopez  :  "Whats the consensus? Locking all 30 days in the pipeline?"
Matthew Graham  :  "RTRS- SOME FED OFFICIALS WORRIED ABOUT ELEVATED VOLATILITY, AND WHETHER U.S. CENTRAL BANK'S RATE LIFT-OFF WOULD IGNITE A FAST RISE IN LONG-TERM RATES SIMILAR TO THE 2013 "TAPER TANTRUM" - MINUTES"
Matthew Graham  :  "RTRS - DESPITE RECENT WEAKNESS MOST FED OFFICIALS STILL EXPECTED INFLATION TO IMPROVE AS LOWER OIL PRICES AND OTHER TEMPORARY FACTORS WANED AND THE ECONOMY IMPROVED - MINUTES"
Matthew Graham  :  "RTRS - FED OFFICIALS EXPRESSED CONCERN ABOUT OVERSEAS RISKS INCLUDING FINANCIAL PROBLEMS IN GREECE - MINUTES"
Matthew Graham  :  "RTRS - FED OFFICIALS ACTIVELY DEBATED WHETHER "DISAPPOINTING" DATA, INCLUDING WEAK CONSUMER SPENDING, WERE TEMPORARY OR EVIDENCE OF A LONGER-LASTING SLOWDOWN - MINUTES"
Matthew Graham  :  "RTRS - FED OFFICIALS SAW EARLY 2015 SLOWDOWN AS LARGELY TEMPORARY, BUT ACKNOWLEDGED INCREASED UNCERTAINTY ABOUT THE ECONOMIC OUTLOOK - MINUTES"
Matthew Graham  :  "RTRS - MANY PARTICIPANTS AT APRIL FEDERAL RESERVE MEETING SAID THEY FELT IT UNLIKELY THE U.S. ECONOMY COULD SHOW ENOUGH IMPROVEMENT TO WARRANT AN INTEREST RATE HIKE AT JUNE MEETING - FED MINUTES"
Matthew Graham  :  "for 2 weeks now, yes. Today specifically, also yes. Depends how you define 'holding pattern' though. The 2-week thing is about the broader sideways range between 2.14 and 2.36. Obviously we aren't going to break that before the Minutes. Today's version is about 2.24-2.28. Doesn't look like we'll break that either, but stranger things have happened. "
Justin Harward  :  "Mg, would you say we're in a holding ptattern until minutes?"